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May 1, 2002


The opinion of the court was delivered by: Scullin, Chief Judge.



On February 8, 2001, CPS Electric, Ltd. ("CPS") and American Manufacturers Mutual Insurance Company ("AMMIC") filed this interpleader action seeking to determine the interests of the United States, Amdursky, Pelky, Fennell & Wallen, P.C. ("Amdursky") and Dean P. Koski in $300,000, representing the gross proceeds of a settlement between CPS, AMMIC and Koski of a personal injury action that Koski had filed on March 24, 1995. The United States claims an interest of $140,505.90, plus interest and statutory additions from July 31, 1995, in the interpleaded funds by virtue of a Notice of Levy the Internal Revenue Service ("IRS") served upon CPS on or about July 10, 1995.

On March 20, 2001, Amdursky and Koski filed cross-claims against the United States alleging (1) that the Government's levy had lapsed and, therefore, was unenforceable; (2) that at the time that the levy was served on CPS, CPS had no fixed and determinable obligation related to Koski's personal injury action; (3) that the Government's levy was "illegal pursuant to 26 U.S.C. § 6323(b)(8);"*fn1 (4) that the IRS failed to provide Koski and Amdursky with "any due process rights pursuant to 26 U.S.C. § 6320 and 6330 prior to the enforcement of the claimed levy;" and (5) that IRS employees had recklessly or intentionally disregarded numerous provisions of the Internal Revenue Code and caused Koski and Amdursky actual, direct economic damages.

In a Memorandum-Decision and Order, dated August 24, 2001, the Court instructed CPS and AMMIC to deposit the disputed settlement proceeds in the Court's Registry. As instructed, CPS and AMMIC deposited the $300,000 in settlement proceeds in the Court's Registry on October 5, 2001, and, pursuant to the Court's Order, they were then dismissed from this action.

Subsequently, on October 30, 2001, the United States filed a notice of disclaimer, disclaiming any interest in $102,972.93 of the $300,000 in settlement proceeds. This amount represented Amdursky's attorneys' fees and reimbursement of costs and disbursements, which had been incurred in connection with Koski's personal injury lawsuit that had generated the settlement proceeds.

Presently before the Court are Amdursky's and Koski's motion for summary judgment and the United States' motion for partial summary judgment.*fn2


A. Timeliness of the levy

Section 6502(a) of Title 26 provides that a tax liability may be collected by levy if the levy is made within ten years after the assessment of the tax. A levy that is made within this period of limitations remains enforceable to the extent of the value of the levied-upon property even if the person who receives the levy does not surrender the subject property within that period. See 26 C.F.R. § 301.6343-1(b)(1); see also United States v. Weintraub, 613 F.2d 612, 620 (6th Cir. 1979) (noting that "the only limitation of § 6502 is that the levy be made or proceeding in court begun against the taxpayer within [ten] years of the assessment" (emphasis added)).

In the present case, the IRS made tax assessments against Koski with respect to the 1978 through 1982 income tax periods on June 10, 1986; with respect to the 1983 income tax period on November 11, 1985; with respect to the 1984 income tax period on September 2, 1985; and with respect to the 1985 income tax period on October 13, 1986. Within ten years of all of these dates of assessment, on or about July 10, 1995, the IRS served CPS with a Notice of Levy with respect to Koski's outstanding income tax liabilities for the 1978 through 1985 income tax periods.

Although acknowledging that the IRS served its Notice of Levy within ten years of the tax assessment, Amdursky and Koski nonetheless argue that because the IRS did not commence the present collection action until October 2000, the levy is untimely. To support this argument, Amdursky and Koski rely upon the language of § 6502(b), which provides that "[t]he date on which the levy on property or rights to property is made shall be the date on which the notice of seizure provided in section 6335(a) is given." 26 U.S.C. § 6502(b) (Supp. 2001).

Amdursky and Koski claim that the United States must take specific steps to meet § 6502's statute of limitations. It must either serve a Notice of Levy followed by a Notice of Seizure or it must commence a proceeding to collect the tax or reduce it to judgment within ten years of the assessment.*fn3 According to Amdursky and Koski, because the IRS neither served a Notice of Seizure nor commenced a collection proceeding within ten years of the date of the assessment, this action is barred.

The Court disagrees. In United States v. Donahue Indus., Inc., 905 F.2d 1325, 1330 (9th Cir. 1990), the Ninth Circuit rejected the same argument, noting that the defendant had failed to distinguish between levies on tangible property and levies on intangible property. The court explained that because the IRS cannot physically seize intangible property, the regulations provide for levy by proper service of notice. See id, at 1329 (citing 26 C.F.R. § 301.6331-1(a)(1) (1989)).*fn4 Furthermore, the court reasoned that if the government could not effect levy by notice of levy, it would be unable to satisfy the statute of limitations in administrative levy actions involving intangible property without actually filing a court action — a result which would be inconsistent with § 6502(a)(1)'s provision that unpaid taxes may be collected by levy or by proceeding in court within the limitations period. See id. at 1330 (citing 26 U.S.C. § 6502(a)(1)). Thus, the court concluded that "[i]n the case of intangible property, a levy is made for all purposes — including satisfaction of the statute of limitations set forth in 26 U.S.C. § 6502(a)(1) — by serving a notice of levy pursuant to 26 C.F.R. § 301.6331(a)(1)." Id.*fn5 (emphasis added).

The Court agrees with the Ninth Circuit's analysis of § 6502's requirements. Therefore, the Court concludes that, because the IRS served its Notice of Levy on CPS within ten years of the dates that it assessed taxes against Koski, the levy in this case is timely and, thus, enforceable. Accordingly, the Court denies Amdursky's and Koski's motion for summary judgment and grants the United States' cross-motion for partial summary judgment with respect to Amdursky's and Koski's first cross-claim.

B. CPS's liability with respect to Koski's injury at the time that CPS was served ...

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